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Advicero Tax Nexia | TAX NEWS | December 2019

  1. Changes in excise duty  in 2020 and planned increase in rates for cigarettes and alcohol and its possible effects
  2. Employer’s payments to PPK can be included in eligible costs settled as part of the R&D tax relief
  3. Prime Minister’s expose and tax plans
  4. A subsidiary company does not prejudge a permanent place of business
  5. Income and expenses correction from the new year
  6. Changes to the withholding tax regulations

1. Changes in excise duty  in 2020 and planned increase in rates for cigarettes and alcohol and its possible effects

On 19th of November, 2019, the first reading of the draft act amending the act on excise duty took place. The project assumes higher excise duty on alcohol and cigarettes.

Sample excise rates will be at:

– ethyl alcohol: PLN 6,275.00 from 1 hectolitre of 100% vol. ethyl alcohol contained in the finished product;

– beer: 8.57 PLN from 1 hectolitre for each degree of finished product;

– wine: PLN 174.00 per 1 hectolitre of ready product;

– other fermented beverages: PLN 174.00 per 1 hectolitre of ready product;

– cigarettes – as a rule PLN 228.10 for every 1000 items and 32.05% of the maximum retail price;

– smoking tobacco – as a rule, PLN 155.79 for each kilo and 32.05% of the maximum retail price;

– cigars and cigarillos: PLN 433.00 for each kilo

– liquid for electronic cigarettes is PLN 0.55 for each milliliter.

The average increase in rates will be around 10%, which results from the fact of increasing costs of counteracting the social and health effects of consumption of alcoholic beverages and tobacco products.

The amended provisions are to enter into force on 1st of January, 2020. The changes will also apply to toughening of penalties for crimes and excise offenses. The Regulatory Impact Assessment shows that due to the amendment and increases, the budget will gain in the next year 2020 about PLN 552.9 million in the case of alcoholic beverages, excluding cider and perry, and about PLN 1,145.9 million in the case of tobacco products, dried tobacco and innovative products (total of PLN 1,668.7 million: these data include additional revenues from excise and VAT, and the same in the following years). As practice shows, higher income from such a drastic increase is the wishful thinking of the legislator. As pointed out by the producers of the above products, the last such large increase in excise duty ended in almost a decrease in budget revenues due to the increase in the shadow economy.

2. Employer’s payments to PPK can be included in eligible costs settled as part of the R&D tax relief

Employee Capital Plans (PPK) it is a voluntary and comprehensive system of long-term saving, which is to increase the financial security of Poles. Each employee who meets the statutory criteria is to be automatically assigned to the PPK system, but may resign from saving at any time. These provisions entered into force on 1st of January, 2019, and the first group of employers should apply them from 1st of July, 2019. The rule is that funds accumulated in PPK are the private property of the PPK participant. The program consists in making contributions to the fund by the employee and employer. The basic contribution to PPK is 2% of the remuneration constituting the basis for calculating the contributions for retirement and disability pension insurance – on the employee’s side and 1.5% on the same basis – on the employer’s side.

In the practice of tax authorities emerging in this respect, it is assumed that employer’s payments for Employee Capital Plans (PPK) can be included – subject to separate conditions – to eligible costs settled as part of the research and development relief. The above results from the interpretation of the Director of the National Tax Information of 7th of November, 2019, No. 0111-KDIB1-3.4010.344.2019.1.MO. The justification of the interpretation shows that such payments can be counted, towards employees (and contractors) carrying out research and development activities, in such a part in which the time allocated for the implementation of R&D activities remains in the total real working time of an employee in a given month, in part financed by the employer and part financed by the employee.

The tax authority in the justification of the interpretation indicated that in accordance with art. 18d par.1 of the CIT Act, a taxpayer receiving income other than income from capital gains, can deduct from the tax base determined in accordance with art. 18, deductible expenses incurred for R&D activities, hereinafter referred to as “eligible costs”. The amount of deduction may not exceed in the tax year the amount of income obtained by the taxpayer from revenues other than revenues from capital gains. The eligible costs are deductible if they have not been returned to the taxpayer in any form or have not been deducted from the income tax base (Article 18d (5) of the CIT Act). It should be noted that tax regulations give the opportunity to recognize as eligible costs expenditures on remuneration of an employee who achieves the indicated purpose, i.e. actually performs R&D works.

Payments financed by the employer under PPK constitute taxable income of the employee under the PIT Act. The employer is required to deduct the applicable tax on the employee’s remuneration. Considering the above, the payment for PPK in the part financed by the employer, as an additional element of the employee’s remuneration, fulfills the premise for its qualification for eligible costs of R&D activity, as a receivable under 12 par. 1 of the PIT Act based on art. 18d par.2 item 1 of the CIT Act.

More about PPK:

3. Prime Minister’s expose and tax plans

On 19th of November, 2019, Prime Minister Morawiecki delivered an expose with some tax information for the future. When it comes to income taxes, you will expect the so-called Estonian CIT and raising the limit on the registered lump sum.

Estonian CIT is a model in which profits are taxed at the time of payment of e.g. dividends. When the money stays in the company and continues to be invested, no income tax will be charged.

The Prime Minister also emphasized the essence of the digital tax, which has been talked about for a long time in the entire European Union, but did not indicate in what form it would be introduced – and there are many different forms with various degrees of discomfort for taxpayers and consumers. The Prime Minister has not mentioned anything about the recently-loud topic of the 30-fold limit on ZUS contributions to be abolished. For the richest taxpayers it will be just another tax increase. Also, the topic of minimum wage was not raised in favor of raising the salary for teachers and the budgetary sphere.

More about tax changes in our article:

4. A subsidiary company does not prejudge a permanent place of business

On 14th of November, 2019, a rather unusual opinion of the spokesperson of the EU Court of Justice in the Dong Yang Electronics case was issued. Namely, it was a matter of assembly services and a place of their VAT taxation. There was a dispute whether the service was performed for a buyer based in Korea or maybe rather the so-called “Plant”, in this case the Polish daughter company. CJEU has repeatedly dealt with similar cases, but there has never been a clear statement on this issue. The Court (WSA) from Wrocław finally submitted a question to the CJEU with a question on how to actually consider it.

Classic premises that influence the creation of a permanent place of business are mainly:

  • Structure in terms of personnel
  • Appropriate technical equipment, infrastructure
  • Such activity of an entity must have a certain stability and features of independence

The above factors would suggest that the existence of a subsidiary is part of creating a permanent place of business. The previous positions functioned so, that failure to meet any of the factors will not cause the emergence of so-called “fixed establishment”.

The Spokeswoman of CJEU stated that, in principle, a subsidiary does not have to be a permanent establishment. The Spokeswoman emphasized that if there is no abuse, you cannot force a permanent place of business. In the analysed case, no such abuse occurred.

5. Income and expenses correction from the new year

The payment deadline expiring after 31st of December, 2019, for commercial transactions will oblige creditors to adjust costs and revenues. There is often a situation where the creditor had to pay income tax on income that he did not actually receive.

The new regulations on “bad debts” will result in the fact that the failure to pay the invoice within 90 days will cause an obligation to increase the amount of revenue of the debtor by the transaction amount, and the seller will reduce the taxable amount. If the buyer does not include the expense as tax costs, he will not reduce his income. After expiry of further 90 days and further default, the new regulations will again oblige to increase the income. So a taxpayer will have to increase the income from the unpaid transaction twice, which leads to an effectively higher income tax.

Earlier, such provisions were in force in income tax law (Article 15b CIT and Article 24d PIT) and were repealed as a result of the very repressive practice of tax authorities distorting their essence for fiscal purposes. It remains to be hoped that it will be better in this respect now.

6. Changes to the withholding tax regulations

The changes to the withholding tax (WHT) regulations introduced from 1st of January, 2019, can be summarized in three points:

1) Modification of the WHT collection mechanism by payers

2) Change in definition of beneficial owner

3) Modification of the special clause against tax avoidance (Article 22c of the CIT Act)

The regulations formally entered into force in 2019, but their application for payments to CIT taxpayers is suspended until 1st of January, 2020 by the deferred regulation. Now the rules will come into force fully, so taxpayers should start preparing for changes. However, it cannot be ruled out that the Ministry of Finance will issue a new regulation and will again postpone the entry into force of the amendment.

Pursuant to the amended regulations, exemption or rate reduction will be possible only for the part of the payment in which its total amount paid to one foreign taxpayer did not exceed PLN 2 million in the tax year (unless further premises are met).

A novelty from 2019 is the obligation of meeting the due diligence criteria by the payer when checking the conditions for exemption/reduction of the rate, which in practice can be very difficult and requires payers to implement procedures / internal instructions how to proceed with making payments of the abovementioned receivables.

Compared to the definition of the beneficial owner in force until the end of 2018, the meaning of the term “receipt [of receivables] for their own benefit” was clarified, meaning:

• the ability to decide on its allocation,

• bearing the associated economic risk,

A condition has also been added for the beneficial owner to conduct an actual business activity if the receivables are obtained in connection with this activity.

The clause in the amended shape implements the premise of artificiality (unreality), i.e. the inartificial (real) means of acting are considered to be rationally chosen to a predominant extent for justified economic reasons. Economic reasons should be understood here as not only bringing immediate benefits in the short term, but also in the long run or other economic considerations that rationally justify the adopted course of action.

There are also discussions on further potential modification of WHT regulations, which may become effective as of 1st of January, 2020. The areas of change discussed are:

• limiting the tax refund mechanism to passive payments – ie excluding the category of intangible services;

• limiting the use of the tax refund mechanism to payments to related parties;

• clarifying the due diligence criteria;

• reducing the time to obtain a tax refund from 6 to 3 months;

• the ability to sign the payer’s declaration in accordance with the representation of the company;

• extension of the possibility of submitting applications for a securing opinion by other payments taxed under DTT as well as solution of existing technical problems with such taxpayer’s request;

• changes in the definition of the beneficial owner in order to adjust it to international law, potentially abolishing the requirement to examine the so-called taxpayer’s actual business activity;

• for payments to unrelated entities / services, one of three options: (i) return to pre-change regulation or (ii) return to pre-change regulation with the addition of newly defined criteria for applying the exemption or a reduced rate, or (iii) introducing the so-called ‘white list’ of countries for which payments will benefit from preferential treatment;

• relaxation of criminal and fiscal liability under art. 56d of Penal and Fiscal Code (the article refers to untruth or concealment of truth in selected income tax statements).

There are only a few weeks left to start the new year, so we can expect that the changes will come into effect in the first quarter of 2020, and not necessarily on 1st of January, 2020. For more information visit our blog

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